Tips for Improving Cash Flow from Deloitt


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This presentation offers valuable tips for business owners and financial executives to better manage your company\'s assets and raise capital in a changing economy. You\'ll learn new strategies for conserving cash, diversifying funding sources, and retaining talent -- all from a new Deloitte special report. Find out how to develop a "new mix" of capital to finance your company, and hear other tips for reducing costs and accelerating business growth.

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Tips for Improving Cash Flow from Deloitt

  1. 1. Tips for Improving Cash Flow from Deloitte<br />May 19, 2011<br />2:00 p.m. ET / 11:00 a.m. PT<br />
  2. 2. 1<br />Today’s Agenda<br /><ul><li>Introduction
  3. 3. Tips from Deloitte: Ways CFOs can adapt to changing financial markets1
  4. 4. Receivables Auction: An innovative solution to raise capital
  5. 5. Q & A</li></ul>Source: Deloitte & Touche LLP, “See the Bigger Picture: Managing Assets in Volatile Times: 9 ways CFOs can Adapt to Changing Financial Markets”..<br />
  6. 6. 2<br />Tip 1: Diversify Capital Sources<br />Credit is Scarce –“Plan for deeper relationships with a wider variety of credit providers and banks…and develop a better understanding of the risk exposure those entities may be facing themselves.”<br /><ul><li>Quality of cash flow and quality of earnings ranked as the top two reasons for declining these loan applicants
  7. 7. Bank lending fell by $587 billion, or 7.5% in 2009, the largest annual decline since the 1940s</li></ul>Source: Federal Deposit Insurance Corp., 2010<br />Source: Pepperdine Private Capital Markets Project, Survey Report III, 2010<br />Source: CFO Magazine: July/August 2010<br />
  8. 8. 3<br />Tip 2: Conserve Cash, Control Costs<br />“Everybody’s looking for the quick, easy wins – but many companies will also need to implement more comprehensive, far-reaching cost reduction efforts to get the results they’re looking for.”<br />What happens when there’s nothing left to squeeze?<br />
  9. 9. 4<br />Tip 3: Lower Working Capital Requirements<br />Track accounts payable performance by commodity and extend terms to industry benchmarks.<br />Eliminate errors in the order-to-delivery process to reduce disputes and improve accounts receivable performance. <br />Improve demand forecasting and inventory planning to lower inventory requirements.<br />
  10. 10. 5<br />Tip 4: Establish a Plan C <br />Traditional budgeting cycles are no longer applicable or particularly useful. Focused, short-term 30 and 60-day forecasts may provide a much more practical option<br />Economic and business uncertainty is forcing companies to improve cash flow visibility by driving greater use of short-term cash flow forecasting<br />
  11. 11. 6<br />Tip 5: Seek Out Strategic Assets<br />“If your company has the financing and cash on hand to support it,<br />start looking for strategic assets today, and be prepared<br />to move quickly but carefully.”<br />What could your company do with more capital?<br /><ul><li>Expand through real estate
  12. 12. Invest in technology
  13. 13. Hire more staff
  14. 14. Increase market share through acquisitions
  15. 15. 60% of companies anticipate their working capital needs to increase in 2011 vs. 2010</li></ul>Source: The Receivables Exchange Working Capital Research Group. 2010<br />If your company is strapped for cash, are you missing out on these opportunities?<br />
  16. 16. 7<br />Tip 6: Communicate Effectively<br />“It’s important to stay in constant communication with your most important stakeholders, with a strong focus on those closely involved in finance.”<br />When it comes to transparency and communication the following groups are critical resources for any company:<br /><ul><li>Customers
  17. 17. Employees
  18. 18. Financial Lenders
  19. 19. Suppliers
  20. 20. General Public</li></li></ul><li>8<br />Tip 7: Importance of Establishing a New Capital Mix<br />“In the long term, CFOs will likely need to develop a new mix of capital to finance their companies.”<br />Receivables finance<br />Bank loans<br />Asset-based loans<br />Private equity<br />Diversifying funding sources means lower risk and often times lower cost. <br />
  21. 21. 9<br />Introducing The Receivables Exchange<br />A Revolutionary Capital Market for B2B Finance<br />The Receivables Exchange is an online electronic marketplace where small and midsize businesses sell their commercial receivables to qualified institutional investors and get less restricted access to competitively-priced capital. <br />Companies auction their accounts receivable for sale<br /><ul><li>Over 60% of working capital is tied up in A/R – their largest use of capital
  22. 22. DSO’s reduced (on average) from 59 days to 2 days</li></ul>Invoices for auction are purchased by Institutional Investors<br /><ul><li>Including banks, hedge funds and asset-based lenders
  23. 23. Competitive, transparent and secure online auction drives down cost of capital</li></ul>Effectively manage working capital <br /><ul><li>Online monetization of A/R in a transparent and highly efficient marketplace provides flexibility and control </li></ul>An auction where everyone wins<br />
  24. 24. 10<br />Sellers Maintain Complete Control<br />Benefits of Exchange Traded A/R<br /><ul><li>No personal guarantees
  25. 25. No contracts or blanket liens
  26. 26. No monthly minimums or obligation to trade
  27. 27. No hidden costs
  28. 28. No customer notification
  29. 29. Supplement existing financing or use as primary source </li></ul>You Set Parameters<br /><ul><li>Maximum discount fee paid
  30. 30. Minimum advance amount
  31. 31. When the auction closes
  32. 32. Buyout Option – Optimal Criteria
  33. 33. When to auction invoices
  34. 34. Which invoices to auction</li></ul>A/R<br />Seller<br />A/R<br />Buyer<br /> bids that fall outside of parameters are invalid <br />
  35. 35. 11<br />No Personal Guarantees<br />A personal guarantee on a business loan should be a last resort – Dun & Bradstreet<br />Definition:“A personal guarantee is an unsecured promise from an individual to make loan payments when a small business is not able to do so.” – Inc. Magazine<br />Which means…If you can’t pay your loan from your business account, you will have to pay from your personal account, and you could risk losing your car, yourhouse, and your savings.<br />Receivables financing does NOT require a personal guarantee. You are leveraging your commercial receivables, NOT your personal assets.<br />
  36. 36. 12<br />An Efficient Marketplace for Working Capital <br />Existing Capital Marketplace<br />New Competitive Electronic Capital Marketplace<br />Banks<br />Seller<br />Seller<br />Banks<br />Asset Based<br />Lenders<br />Seller<br />Seller<br />Asset Based<br />Lenders<br />Traditional<br />Factors<br />Seller<br />Seller<br />Traditional<br />Factors<br />Hedge Funds<br />Seller<br />Seller<br />Hedge Funds<br />Pricing discrepancies<br /> Inefficient<br /> Local<br />Fragmented<br />Centralized<br /> Transparent<br /> Efficient<br /> Global<br />
  37. 37. 13<br />… Saving You Money<br /><ul><li>More bargaining power if you aren’t relying on one funding source
  38. 38. Online receivables financing unlocks the power of competition to lower your cost of capital.
  39. 39. Lowering risk through diversification mean less opportunity to lose money over some unforeseen event – like your bank shutting down</li></li></ul><li>14<br /> Real World Case Study<br />Company Overview & Challenge <br /><ul><li>9 years in Biz
  40. 40. Industry – engineering services personnel
  41. 41. Long bank relationship
  42. 42. Insufficient capital to fund growth opportunities</li></ul>The Solution & Results <br /><ul><li>Seller on The Receivables Exchange since 2009
  43. 43. Grew by 37% in 2009, nearly 70% in 2010
  44. 44. Lowered cost of capital more than 40%
  45. 45. Spends 30 minutes per auction to manage cash flow</li></li></ul><li>15<br />How The Receivables Exchange Works<br />40thDay <br />11:07am<br />Auction Receivables on Your Own Terms to Drive Growth<br />Submit Bid <br />(Buyer 2)<br />Advance: 90,000<br />30 Day Disc Fee $1,2002<br />Win Auction (Buyer 2)<br /> Advance: $90,000<br />30 Day Disc Fee: $1,200<br />Submit Bid <br />(Buyer 1)<br />Advance: 88,000<br />30 Day Disc Fee $1,500<br />6<br />Invoice Pays<br />$100,000<br />TRE Remits <br />Receivables Buyer $91,6004<br />3<br />Tuesday<br />1:30pm<br />4<br />2<br />Tuesday<br />5:00pm<br />Wednesday<br />3:00pm3<br />7<br />Monday<br />9:30am<br />41stDay<br />12:07pm<br />1<br />Thursday<br />10:00am<br />TRE Remits <br />Seller: $8,400<br />Post Auction<br />Invoice: $100,000 <br />Min Advance: $85,000 <br />Max 30 Day Disc Fee: $1,5001<br />5<br />Advance Funds<br />$90,000<br />(Less TRE fees)<br />1- All Auctions priced on 30 day basis<br />2- Daily rate = $1200 / 30 days = $40<br />3 - All auctions close 3.00pm Eastern<br />4- Actual Fee = $40 * 40 days = $1600<br />
  46. 46. 16<br />Industry Recognition<br />“Most Innovative E-Commerce Company in the World”<br />Named the winner in the e-commerce category of The Wall Street Journal’s 2010 Technology Innovation awards, which recognizes the most important innovators in technology worldwide. The first winner in the e-commerce category since 2004. <br />“Top 40 Innovator in Financial Technology”<br />Named to “2010 Tech 40: The Top 40 Innovators in Financial Technology” alongside financial services heavyweights JP Morgan Chase, Bank of America, Bloomberg and others. <br />“New Capital Market”<br />Morgan Stanley Business-to-Business finance report hails The Receivables Exchange as “a new capital market” and solution for SME supplier financing .<br />“Hope for the Financial Industry”<br />Named one of “Eight Startups Brimming with Hope for the Financial Industry.” <br />“Best Web-based Supply Chain Financing Solution”<br />Named the “2009 Best Web-based Supply Chain Financing Solution.” <br />
  47. 47. 17<br />The Receivables Exchange – Structure and Eligibility<br /><ul><li>Eligibility Requirements for Seller Members
  48. 48. Companies registered in the U.S.
  49. 49. Two years minimum operating history
  50. 50. Minimum $2 Million in annual revenue</li></ul>For additional information on how alternative financing can work for your business:<br /><ul><li>
  51. 51. working capital specialist call 877.392.4952</li></li></ul><li>Q&A<br />D. Ryan Campbell<br />VP, Head of SMB Sales<br />The Receivables Exchange<br /><br />